April 18, 2018

Hawaii Judge Compels Carrier To Participate In Arbitration

The carrier's attempt to escape arbitration based upon a perceived bias in the insured's selected arbitrator was rejected when the court granted the insured's motion to compel arbitration. Queen's Med. Ctr. v. Travelers Cas. & Sur. Co. of Am., 2018 U.S. Dist. LEXIS 60137 (D. Haw. April 9, 2018).

In 2012, the Queen's Medical Center was sued by Pacific Radiation Oncology (PRO). Queens filed a counterclaim. Travelers defended Queens under a reservation of rights. During a settlement conference in the underlying suit, Queens and Travelers agreed to a procedure for handling their coverage dispute. Travelers agreed to contribute $1,000,000 as a portion of the overall settlement package between Queens and PRO, and Queens reserved its right to pursue claims under Travelers' policy. The parties also agreed to attempt mediation and, if no agreement was reached, to arbitrate their dispute on an expedited basis before a panel of three arbitrators.

After mediation failed, the parties agreed each would select one arbitrator and those two arbitrators would select the third. Queens selected Alan Van Etten and Travelers selected Michael Tanoue. After Van Etten submitted his disclosures, Travelers objected on three grounds: (1) in the underlying litigation, Van Etten acted as counsel for PRO in obtaining insurance coverage in connection with the counterclaim filed by Queens; 2) Van Etten previously represented clients adverse to Travelers in coverage matters; and (3) Van Etten had used Queens' health services.

Queens filed a motion to compel arbitration. Travelers argued the motion should be denied because: 1) the Federal Arbitration Act (FAA) did not apply to the parties' agreement; 2) the agreement did not set forth key elements of an arbitration such as rules to govern the arbitration or to determine the scope of discovery, the issuance of subpoenas, and the selection of arbitrators; and 3) Van Etten had a disqualifying conflict and Travelers never agreed to a non-neutral arbitrator.

The court rejected Travelers' arguments and found the agreement enforceable. The FAA applied the the agreement. The policy and agreement evidenced a commercial transaction that involved interstate commerce, making the FAA applicable. Because the FAA applied, the FAA, not state law, supplied the rules for the arbitration. Under the FAA, written arbitration agreements were valid, "save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. sec. 2. Any missing terms in the arbitration agreement were not essential and need not be in writing. Once the arbitrators were selected, the could set the procedural rules, including issuance of subpoenas and the scope of discovery.

Travelers also argued that the agreement was void because it did not set forth whether the parties could select non-neutral arbitrators. But arbitrators could only be challenged under the FAA when a party sought to vacate an arbitration award.

The court also declined to rule on Van Etten's qualifications pre-arbitration award. Courts had consistently held that they lacked the power to disqualify an arbitrator before the arbitration was complete or while it was pending.

Comments

The carrier's attempt to escape arbitration based upon a perceived bias in the insured's selected arbitrator was rejected when the court granted the insured's motion to compel arbitration. Queen's Med. Ctr. v. Travelers Cas. & Sur. Co. of Am., 2018 U.S. Dist. LEXIS 60137 (D. Haw. April 9, 2018).

In 2012, the Queen's Medical Center was sued by Pacific Radiation Oncology (PRO). Queens filed a counterclaim. Travelers defended Queens under a reservation of rights. During a settlement conference in the underlying suit, Queens and Travelers agreed to a procedure for handling their coverage dispute. Travelers agreed to contribute $1,000,000 as a portion of the overall settlement package between Queens and PRO, and Queens reserved its right to pursue claims under Travelers' policy. The parties also agreed to attempt mediation and, if no agreement was reached, to arbitrate their dispute on an expedited basis before a panel of three arbitrators.

After mediation failed, the parties agreed each would select one arbitrator and those two arbitrators would select the third. Queens selected Alan Van Etten and Travelers selected Michael Tanoue. After Van Etten submitted his disclosures, Travelers objected on three grounds: (1) in the underlying litigation, Van Etten acted as counsel for PRO in obtaining insurance coverage in connection with the counterclaim filed by Queens; 2) Van Etten previously represented clients adverse to Travelers in coverage matters; and (3) Van Etten had used Queens' health services.

Queens filed a motion to compel arbitration. Travelers argued the motion should be denied because: 1) the Federal Arbitration Act (FAA) did not apply to the parties' agreement; 2) the agreement did not set forth key elements of an arbitration such as rules to govern the arbitration or to determine the scope of discovery, the issuance of subpoenas, and the selection of arbitrators; and 3) Van Etten had a disqualifying conflict and Travelers never agreed to a non-neutral arbitrator.

The court rejected Travelers' arguments and found the agreement enforceable. The FAA applied the the agreement. The policy and agreement evidenced a commercial transaction that involved interstate commerce, making the FAA applicable. Because the FAA applied, the FAA, not state law, supplied the rules for the arbitration. Under the FAA, written arbitration agreements were valid, "save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. sec. 2. Any missing terms in the arbitration agreement were not essential and need not be in writing. Once the arbitrators were selected, the could set the procedural rules, including issuance of subpoenas and the scope of discovery.

Travelers also argued that the agreement was void because it did not set forth whether the parties could select non-neutral arbitrators. But arbitrators could only be challenged under the FAA when a party sought to vacate an arbitration award.

The court also declined to rule on Van Etten's qualifications pre-arbitration award. Courts had consistently held that they lacked the power to disqualify an arbitrator before the arbitration was complete or while it was pending.